Dollar Bounces After Longest Monthly Losing Streak Since 2011

(Bloomberg) -- The dollar carved out slight gains to start the month, though remained hampered by developments in the White House that kept the focus on the Trump administration's ability to proceed with its legislative agenda.

Price action was very erratic and there was still only limited appetite to own the greenback, which rose for the first day in three. The dollar fell 2.6 percent in July, its fifth consecutive monthly loss. The prospect of the Federal Reserve taking a cautious approach to another rate hike in 2017, coupled with uncertainty over fiscal policy, kept the greenback defensive at a time when economic performance overseas was on a steady to stronger footing.

• USD/JPY gyrated as the 10-yr U.S Treasury yield fell precipitously to a fresh low for the day, undercutting the pair. USD/JPY was trading at ~110.28 after dropping from a fresh morning high at 110.59 to trade as low as 109.93. Stop-loss sell orders were tripped below 110.00 and more are in place below 109.80 and 109.50, according to traders in Asia, London and New York. Overnight, the pair dropped to within a whisker of 110.00 before rebounding to the session high amid early support from U.S. Treasury yields
• EUR/USD was trading at ~1.1805 after dropping to a fresh low at 1.1785 in late morning. Price action on break of the overnight low at 1.1805 and 1.1800 was consistent with stop-loss sell orders being tripped, one trader said. Earlier, EUR stalled near the Monday peak close to 1.1850, where an option barrier strike is positioned, according to traders familiar with the transactions who asked not to be identified because they are not authorized to speak publicly
• EUR has been weighed by profit-taking near technical resistance from the 1.1846 high on Jan. 14, 2015, and as sellers emerge ahead of that option barrier. EUR has gained ~6% vs the USD since Draghi's speech in Sintra in late June, while a broader measure of EUR is up ~4.65% over same period. The speed of the gain may raise further eyebrows at the ECB as it struggles to reach its inflation mandate
• GBP/USD relinquished most of gains to trade at ~1.3215 after rising as high as 1.3245 before selling capped. Traders will eye the BOE policy meeting Thursday, where new board member Silvana Tenreyro will vote for the first time. Market-priced odds of a rate hike have dwindled after rising above 50% in recent weeks
• USD/CAD rose to a new high for the day close to 1.2550 as a drop in WTI crude oil weighed on the Canadian dollar
• U.S. data Tuesday showed the June PCE core rose 1.5% y/y vs estimates for a gain of 1.4%, while personal income was unchanged vs estimates for a gain of 0.4%. Personal spending rose 0.1%, matching estimates. The July ISM manufacturing index was 56.3 vs est. 56.4, while June auto sales declined more than expected, taking some of the steam out of stocks. Meanwhile, euro area 2Q GDP rose at a 2.1% annual pace, matching estimates for a slightly stronger pace than the 1.9% from 1Q

To contact the reporter on this story: Dennis Pettit in New York at dpettit5@bloomberg.net.

To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Greg Chang, Vivien Lou Chen